A General Equilibrium Structure for Induced Supply and Demand

UCSD Discussion Paper 96-35

Posted: 18 Jun 1997

See all articles by Steven Gjerstad

Steven Gjerstad

University of Arizona - Department of Economics

Jason M. Shachat

National University of Singapore (NUS) - Department of Economics

Date Written: October 1996

Abstract

We construct a mapping between induced supply and demand environments, often used in laboratory market experiments, and general equilibrium production economies. This general equilibrium structure, when combined with the interpretation of market experiments as decentralized economic systems by Smith [1982], results in a stronger link between market experiments and the decentralized mechanisms literature. This facilitates a clearer delineation between environment, institution, and behavior in these experiments. In the absence of this structure these three aspects of market experiments have often been misconstrued. For example, Gode and Sunder [1993] claim that efficiency in their "zero intelligence" model results primarily from the institutional structure of the double auction, rather than from rationality of traders. Using our structure, we show that in fact, their zero intelligence traders exhibit individual rationality.

JEL Classification: C92, D51

Suggested Citation

Gjerstad, Steven and Shachat, Jason, A General Equilibrium Structure for Induced Supply and Demand (October 1996). UCSD Discussion Paper 96-35, Available at SSRN: https://ssrn.com/abstract=8587

Steven Gjerstad

University of Arizona - Department of Economics ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States

Jason Shachat (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

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